An investment firm that collapsed owing its backers millions of pounds was a Ponzi scheme that ‘deliberately created a false impression about the company,’ a court has ruled.
London Capital & Finance (LCF) raised £237million from around 11,600 individual investors before it went bust in 2019, promising them healthy returns from the sale of risky ‘mini-bond’ products.
But in a ruling yesterday, a High Court judge said the company had engaged in ‘the fraudulent conduct of business’ and misrepresented itself in a ‘widespread, fundamental and systematic’ way.
The judge also ruled that LCF’s former boss Michael ‘Andy’ Thomson and Spencer Golding, a shareholder in companies linked to LCF, were liable for breaching their duties as directors.
Three other associates, Paul Careless, John Russell-Murphy and Robert Sedgwick, were also found to have ‘knowingly participated in the fraudulent conduct’.
The men face a hefty bill for damages. Three former co-defendants have struck out-of-court settlements.
The court said that LCF had operated as a Ponzi scheme, a scam where money from new investors is used to pay existing investors to create the illusion of profit.
Mr Justice Miles, the judge in the case, held that a ‘substantial part’ of the funds invested into the company were not used to provide loans to small and medium-sized businesses, as had been promised, but were instead ‘misappropriated’ and used to make payments to people connected to the firm.
Some of the cash had been spent on items including horses and Porsches.
Thomson had ‘wanted to take out as much money as possible’, was ‘recklessly indifferent’ to bondholders, had lied, forged signatures and knowingly misled auditor PwC, the judge said.
A hearing is to be held to determine how much damages will be paid. Administrators are seeking more than £177.5million. A £120million compensation scheme has already been set up, paid for by taxpayers.
The judgment came after Thomson was last year handed a ten-month prison sentence, suspended for two years, after breaching a restraining order on his assets imposed by the Serious Fraud Office.
In May, the Financial Reporting Council (FRC), the accounting watchdog, fined ‘Big Four’ firms PwC and EY £4.9million and £4.4million respectively for failing to uncover the scam during their audits of LCF.
The City watchdog the Financial Conduct Authority also came under fire in a 2020 review which found it had been ‘wholly deficient’ in its handling of a probe into the LCF collapse.
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